August 9, 1978
In most District states, retail sales are maintaining a 10 percent margin of increase over last year. Tight control of inventories is reported to have resulted in some loss of sales. Automobiles continue to sell well although there is a trend toward higher sales of domestic intermediates and lower imports in response to the decline of the dollar. Residential housing starts are declining throughout District states but nonresidential construction activity remains high. Demand for real estate is unquenchable but properties for sale continue in light supply. This summer's crop harvest has been bountiful and, with prices staying high, farmers have been able to recoup losses from winter weather damage. Feed lots are again running into a cost squeeze. An education administrator in Southern California sees a budget cutback of about 10 percent as a result of Proposition 13 which will effectively cancel community-oriented programs like child care centers and reduce the number of evening classes.
Retail sales continue robust in the Pacific Northwest, Nevada, and Arizona, but there has been some hesitancy in California as people try to take measure of Proposition 13. Consumers are uncertain about its ultimate effects on their paychecks and check-out counter tabs as well as tax assessments and rents. Nevertheless, in all areas, domestic automobiles have been selling well with standards currently outperforming compacts. Sales of imports, especially Japanese models, are off sharply due to price rises brought on by the decline in the dollar.
Retail sales of general merchandise are averaging about 10 percent higher than last year and most areas do not report any deceleration. In some areas where residential housing has leveled out, there is a boom in commercial building to house public and private support services and provide the infrastructure necessary to expanded communities.
Inventory-sales ratios are reported to be low, a situation which to a large extent is considered "normal" because of high inventory-carrying costs. However, there is some concern over a possible recession in the near future and this concern may be influencing operations. The result of this disposition on all levels of trade is to keep inventories relatively tight. One Director reported lost sales as a result of a low inventory policy.
In California, the one-month flurry of residential permit activity in June reflected a July 1 effective date for new structural energy requirements which are expected to add 15 percent to building costs. The basic trend is down, however, as it is throughout most of the Twelfth District. Real estate activity remains strong, but due to a lack of properties for sale and the general scarcity of rental units, the primary result is higher prices. The situation is exacerbated by the continued conversion of apartments to condominium units as a result of the threat of rent control, high cost of maintenance, and a high sales price/rental income ratio in most areas.
Around Seattle, the economy is experiencing a strong spurt due to the very large orders received by Boeing Company for its 767 airplane. Income, employment, sales and immigration are experiencing strong growth. Office space and housing are facing unquenchable demand which is expected to last at least through the end of this year.
In agriculture, excellent crops and high prices during the summer have allowed farmers to recover losses suffered earlier because of heavy spring rains. Regarding the livestock situation, the price of fat cattle has fallen, whereas the price of feeder cattle has risen. This tends to shrink the profit margin for feed lot operations. The prices of feeder-type grains—barley, oats, etc.—are still $100 a ton or better. A squeeze on feed lot operators usually precedes higher prices at the retail counter, as rising feed-lot costs are ultimately passed on to the consumer. Rising feed-lot costs that have developed over the past month and one-half are expected to influence retail prices in the winter.
A director who is a public college administrator in California has been trying to pin down the effects of Proposition 13 on higher education in his area. He projects a 15 to 20 percent reduction in the amount of resources available to his school. Projects such as child care centers will be eliminated and community service programs will be reduced to a minimum. Although reduction in over-all classes will be about 10 percent, most of it will affect part-time or evening classes. There has been an increase in early retirements and, since these teachers will be replaced by new lower-paid employees, the trend provides some budget relief. Teachers have been canvassed about doubling up on subjects and have been found flexible but not enthusiastic.